CPSC Reaches Buckyballs Settlement, Sets Dangerous Precedent

On a number of occasions, we  here at Abnormal Use have reported on the ongoing legal battle between the Consumer Products Safety Commission (CPSC) and the makers of a toy called Buckyballs (see here and here).   After nearly two years, the CPSC has finally reached a settlement with the former CEO of the manufacturer of Buckyballs through which the toy will be recalled. By way of a refresher, Buckyballs are pea-sized  magnetic balls that are ultra-strong and can be stacked or shaped in fun ways.  The potential problem: If a child swallows more than one ball, the powerful magnets can cause serious internal injury.  The CPSC has likened the injury to a gunshot wound.  In spite of the product’s preexisting warnings, the CPSC waged a full fledged crusade against Buckyballs that ultimately led to the demise of its corporate manufacturer. Although Buckyballs’ parent company (Maxfield & Oberton Holdings) has been driven out of business, the CPSC has also gone after its CEO, Craig Zucker.  The CPSC has sought to hold him personally responsible for a recall of the toy.  Zucker has been an outspoken critic of the CPSC and has contended that the law does not allow individual employees to be held liable for such things.  It would certainly seem that Zucker had a valid argument.  Nevertheless, the realities of litigating against a federal agency with unlimited resources seems to have finally forced Mr. Zucker to relent.

The settlement agreement provides that Zucker will place $375,000 into a trust that the CPSC will control.  The CPSC will recall Buckyballs (and its sibling, Buckycubes) and will grant a refund to customers to be paid from the trust.

The settlement is troubling in that it sets a precedent for the CPSC holding a corporate officer personally liable for a product recall.  A good analysis of this issue can be found here.

Tech Giants Agree to Settle (No) Poaching Lawsuit

On the eve of what could have been very embarrassing litigation for Apple, Google, Intel, and Adobe, the four tech giants agreed to settle a federal lawsuit in California alleging that they conspired to keep wages lows for certain employees.  The settlement is worth approximately $325 million. That would seem like a pretty massive settlement for these companies unless you consider the fact that Google and Apple alone have a combined market cap of nearly $1 trillion.

The Plaintiffs in the lawsuit alleged the four tech companies agreed to not poach each others’ employees, which in effect formed an anti-competitive cabal that kept engineers’ wages down.  A class-action antitrust lawsuit was filed to compensate the engineers that worked for the tech giants from approximately 2005 through 2006.  There were more than 60,000 workers in the class.  Class members claimed that the no poaching agreement resulted in $3 billion of lost wages.  That’s a far cry from the $324 million settlement agreement. Although some of the companies admitted the no-poaching agreement, they disputed the fact that it was done to keep price wages down.  Right. So, these multi-billion companies claim ignorance of basic economic principles?  I know some of these tech guys pride themselves on not having college degrees, but maybe they should take a few online college courses?  Economics 101 would be a start.

Some of the alleged actions of the executives laid out in the Reuters article are just comical:

  • After a Google recruiter solicited an Apple employee, then-Google CEO Eric Schmidt told Apple co-founder Steve Jobs that the recruiter would be fired.  Jobs then forwarded the email to an Apple HR executive with a smiley face.
  • A Google human resources director sent an email asking Schmidt about sharing its no-cold call agreements with competitors.  Schmidt replied that the agreement should be spread “verbally, since I don’t want to create a paper trail over which we can be sued later?

If you are going to go the route of avoiding a paper trail, wouldn’t you pick up the phone to tell someone that?  Maybe its just me.

Lucasfilm, Intuit, and Pixar were also defendants in the original lawsuit, but those companies settled before the class was formed. Those companies got off relatively cheap, paying approximately $20 million to settle the claims against them.

We often say that in class action lawsuits there’s really no winner other than the lawyers.  However, I think it’s safe to say that the tech companies won here.  $325 million is nothing to sneeze at, but it really works out to about $5,500 per employee (before deducting fees and costs).  While that’s certainly better than the $10 gift cards that are the spoils of many class action settlements, it’s not a lot of money in comparison to what these employees may have lost.

GM Faces Derivative Shareholder Lawsuit

General Motors (GM) has recently faced a flurry of legal problems and bad publicity stemming from a decision to delay the recall of nearly 3 million vehicles with allegedly faulty ignition switches.  The automaker is being investigated by multiple government entities, including the Department of Justice, regarding the timing of its recall.  Now it can add one more problem to the list.  A shareholder recently filed a derivative shareholder lawsuit against GM, several current and former GM officers, and several GM board members. The Plaintiff’s lawsuit, which was filed in federal court in Michigan, alleges a breach of fiduciary duties and a waste of assets.  The shareholder is seeking damages and a court order requiring the Detroit automaker to overhaul its corporate governance structure to protect shareholders from future “damaging events.”  Specifically, he wants GM to create a board committee responsible for safety, inspection, and maintenance.  He claims that such a committee will give shareholders more input into board polices and guidelines.  The Plaintiff has also sought a court order that shareholders be allowed nominate at least four candidates to the board. Regardless of whether the Plaintiff is successful in this suit, GM looks to be in a world of trouble over this recall controversy.  We expect to see the federal government levy a fine against GM that is as bad or worse than that handed down to Toyota.  In March, Department of Justice officials scolded Toyota for its actions during the unintended acceleration recall and announced a $1.2 billion criminal penalty against Toyota.   The irony of GM running into problems with the government is that GM was essentially owned by the federal government from 2008 until just last December.  This time period covers at least part of the time when GM is alleged to have committed wrongdoing with respect to failing to recall the vehicles.

A New Lawsuit: Did Chobani Pilfer Its Yogurt Recipe?

It has been a tough few months for the Chobani Greek yogurt company.  In February, we here at Abnormal Use  reported on both a court’s then recent ruling that the company could not label its yogurt “Greek” since its products are made in America and Russia’s decision to block Chobani’s yogurt from reaching U.S. athletes in Sochi.  Now, the company faces a new problem: allegations of corporate espionage.  According t0 the New York Post, a recent court filing alleges that Hamdi Ulukaya, founder of the Chobani, stole the Chobani yogurt recipe from rival yogurt company Fage.  The allegation is part of a 2012 lawsuit brought by Ulukaya’s ex-wife, Ayse Giray. The suit alleges that Giray owns 53 percent of Chobani based on a 2003 handwritten letter from Ulukaya promising her an ownership interest in a Chobani precursor company (Euphrates).  That ownership interest was allegedly given in exchange for Giray providing $500,000 in capital.  However, she has no stock or other proof of ownership in the company.

Now as part of her lawsuit, Giray is alleging that Ulukaya paid a former Fage employee approximately $4o,ooo for the yogurt recipe. Regardless of whether the allegation is true, it is a bit of head-scratcher. Why would a person who allegedly owns 53 percent of a company-to-be claim that the company developed its main product through corporate espionage?  We can only figure that perhaps it was meant to discourage an investment firm from  purchasing a stake in Chobani that would dilute her 53 percent.

Bloomberg Business Week actually did a cursory analysis of the Chiobani and Fage yogurts ingredients, which revealed some difference.  Most notably, Chobani’s yogurt uses nearly 1/4 more milk than Fage’s yogurt.  So maybe this whole thing is much ado about nothing.

Baidu Scores Dismissal of Free Speech Lawsuit

According to The New York Times, Baidua, a popular Chinese search engine, recently scored a simultaneous victory for both censorship of speech and freedom of speech.  A federal district court in New York recently dismissed a lawsuit that sought to punish Baidu for censorship that limits certain pro-democracy search results.  In dismissing the lawsuit, the judge ruled that Baidu itself maintains a First Amendment right to censor pro-democracy webpages from from its own search results. Baidu is the biggest search engine in China with more than 50 percent of the  market share.  However, the Chinese company is required to comply with the nation’s strict regulations over Internet content. As you may recall, in 2010,  Google decided to shutdown its search engine operations in China following ongoing disputes with the nation’s censorship rules. This lawsuit was filed in 2011 and claimed that Baidu was violating United States laws on free speech because its search results had been censoring pro-democracy works for those accessing the site from New York.  The lawsuit sought a mere $16 million in damages for the purported free speech violations.  However, the district court ultimately ruled against the plaintiff and held that requiring Baidu to include pro-democracy webpages in its search results would actually be a violation of the First Amendment Funny how that works, eh? The court compared Baidu’s filtering of search results to a newspaper’s right to exercise “editorial control” over the contents that it publishes. Baidu has simply created a search engine producing results that favor certain types of political speech. The court’s order states that “[t]he First Amendment protects Baidu’s right to advocate for systems of government other than democracy . . . just as surely as it protects Plaintiffs’ rights to advocate for democracy.” 

Tesla Running Into Trouble With Franchise Laws

Luxury electric car maker Tesla recently ran into legal problems.  Interestingly, this legal trouble has nothing to the with the cars themselves.  Rather, it has to do with the way that Tesla sells its cars.  Tesla has the audacity to sell its cars directly to customers and cut out the middle man; this is the kind of dangerous nonsense that won’t fly in many states.  Tesla has been effectively banned from selling cars in New Jersey, Texas, and Arizona because they are allegedly in violation of laws that require the automobiles to be sold through dealer franchise. Not surprisingly, the move has many consumers asking why these laws exist and whether they are valid.  The answer to the first question is easy – $$$ and lobbyists.  Automobile dealers have, through lobbyists, thrown around a lot of money to local politicians to ensure that protectionist laws are passed to ensure their continued viability.  Those politicians then pass laws requiring that cars can only be sold through licensed dealers under the guise of safety.  It’s akin to paying protection money to the mob.

The more interesting question is: Are these types of laws valid?  The question is not as easy to answer as it once was.  Under the doctrine known as the “rational basis review,” the Supreme Court has held that just about any law that didn’t discriminate against a protected group like minorities or women was presumed to be valid.  The judiciary was not supposed to be second-guessing legislatures on whether a law had a legitimate public purpose.  However, recently, courts have been looking at these types of laws more closely.  The Fifth and Sixth Circuits recently struck down state laws that restrict who can sell caskets.  The courts found the problems with these particular laws was that they only protected funeral directors against competition and didn’t have the sort of  health and safety justification that could overcome scrutiny.

The multi-million dollar question for Tesla is whether these automobile dealer franchise laws have the sort of safety justification necessary to survive judicial review.  Tesla’s CEO, Elon Musk, certainly doesn’t think they do.  He recently stated:

The rationale given for the regulation change that requires auto companies to sell through dealers is that it ensures “consumer protection”. If you believe this, Gov. Christie has a bridge closure he wants to sell you! Unless they are referring to the mafia version of “protection”, this is obviously untrue. As anyone who has been through the conventional auto dealer purchase process knows, consumer protection is pretty much the furthest thing from the typical car dealer’s mind.

These statements certainly ring true for for me.  It’s certainly not a fun process, and there is virtually no sense that the dealer is looking out for you.  I’d much rather buy a car directly from Honda than from a dealer.

Man Sues After Choking During Live Fish Eating Contest At Tennessee Haunted House

Don’t you just hate it when a live fish eating contest at a haunted house goes awry after you’ve PAID your $15 to enter the contest?  Apparently, so does a Tennessee man named Cameron Roth.  He has filed a lawsuit against the operators of a Tennessee haunted house alleging that he was hospitalized for four days when he choked on a live fish he ate during one of their contests. The facts are these: Mr. Roth paid $15 to Frightmare Manor in 2013 to compete in a contest at the Haunted House.  The contest involved eating two live bluegill fish.  The suit alleges that “Frightmare failed to remove any of the spines from the bluegill fish” before providing them to contestants.  That would be an interesting feat to remove the spines from fish in a live fish eating contest.  But we digress.  Mr. Roth began choking as the first fish became lodged in his throat.  For those who are curious, this is how big a bluegill fish is:

The lawsuit alleges that Frightmare negligently failed to have any medical workers on hand to supervise the contest and workers did not seek emergency medical help when Roth began choking.  The suit seeks $150,000 in compensatory damages and $400,000 in punitive damages.  If the fish was anywhere close to as big as the one pictured above, this would appear to be a case of assumption of risk.

Sprint Allegedly Overbills Feds For Spying Services

There has been a lot of press in the past year about the various government programs in place for the United States to snoop on its own citizens.  Well, apparently, all that snooping is far from free, and the federal government is none too happy with one of its bills.  Federal officials filed a lawsuit earlier this week alleging that Sprint Communications overbilled the FBI, U.S. Bureau of Alcohol, Tobacco and Firearms, and other government to the tune of $21 million for wiretap services. Communication companies ordered by courts to intercept customers’ communications are allowed to recoup the cost of installing and maintaining the wiretaps.  However, the federal government and communications battled for years over who covers the cost to upgrade their equipment and facilities to ensure they can comply with court orders seeking wiretaps of their customers.  In 2006, the Federal Communications Commission settled the dispute in favor of the government, ruling that companies can’t bill for modifying their equipment and facilities to more efficiently intercept communications. Shocking! The lawsuit filed in federal court in San Francisco alleges that Sprint fraudulently billed for such expenses relating to equipment and facilities, which it knew was not billable. The tab from 2007 to 2010 amounted to $21 mil.  Of course, like any good Plaintiffs, the government doesn’t just want its $21 million back from the over-billing.  The feds are seeking treble damages, which would amount to approximately $63 million.  Sprint has denied any wrongdoing. This whole thing just seems silly.  Maybe Sprint should just suggest that the federal government join up with Russia for a wiretapping Framily Plan.  That might save Uncle Sam a little money.  Because “You don’t have to be family, to be Framily.”

Apple Gets Siri Lawsuit Dismissed

One of Apple’s big selling points has long been that their products “just work.”  Most Apple users would likely confirm that the claim is true, at least for the most part.  However, one group of Apple customers was apparently not so satisfied with Apple’s voice recognition software, known as Siri, and filed a consumer protection lawsuit in 2012.  That  lawsuit (In Re iPhone 4S Consumer Litigation, 12-cv-1127, U.S. District Court, Northern District of California (San Francisco)) was recently dismissed. The plaintiffs claimed that Siri didn’t work as advertised. Specifically, they alleged that sometimes Siri didn’t understand their requests, required long wait times, or responded with the wrong answer.  Apple didn’t exactly put up a strong defense of Siri’s functionality by arguing that the plaintiffs could have simply returned their phones if they were dissatisfied.   Even assuming the complaints about Siri are true, does that mean the plaintiff’s are entitled to recover?  Not even close.

In February, U.S. District Court Judge Claudia Wilken dismissed the plaintiff’s claims, calling them ”non-actionable puffery” and ruling that the plaintiffs had failed to show adequate evidence of any fraud in Apple’s part.  She also noted that Apple made no promise that Siri would operate without fail and that a reasonable consumer would understand that the commercials depicting the products they are intended to promote would be unlikely to depict failed attempts.

Thankfully, the judge used common sense in this case, which will hopefully help avoid a line of case law requiring advertisements to depict dropped calls, broken down cars,  malfunctioning computers, et cetera.

We reached out to Siri for a comment and she replied:

I’m really sorry, but I can’t take any requests right now. Please try again in a little while.

Interesting.

(Editor’s Note: Since we’re talking about Siri, please feel feel to revisit our April 2012 post entitled “Deposing Siri.”).

Let the Games Begin! Canadian Olympic Committee Sues The North Face

The Canadian Olympic Committee (COC) is none too happy about The North Face’s design and marketing choices for some recently released apparel, which it believes is an attempt to mislead people into thinking the company is an official sponsor of the 2014 Winter Olympic Games.  The COC has filed suit in a Canadian Court alleging that the apparel and the marketing surrounding it violate numerous Olympic trademarks.  The dispute is over The North Face’s clothing line originally dubbed its “2014 Village Wear Collection,” which used the marks “RU/14,” and “2.7.14″ (the date of the open ceremonies).  The designs also prominently feature national flags and the items were allegedly identified in marketing materials with names such as “Men’s Sochi Full Zip Hoodie.”  Here is an example of one of the items from the collection. The COC claims that the words, images, and symbols were used by The North Face in a way that was “deliberately designed and calculated to mislead and confuse the public into believing [The North Face] is an official sponsor [of the 2014 Winter Olympics].  The North Face has renamed the line the “International Collection” in response to complaints by the COC but apparently has not changed any of the designs and has refused to stop selling the products. The COC is seeking damages in an unspecified amount, as well as an injunction prohibiting the further sale of the products.

The North Face has released a statement on the matter denying liability.  The director of brand communications said in the statement:

The North Face has been a longstanding supporter of the free-skiing movement but we are not an official sponsor of the Canadian Olympic Committee or Team Canada and never indicated that we were.  We do not agree with the COC’s claims and are disappointed that they have taken this action.”

This whole lawsuit is not that surprising given that the Olympics have become all about big big money in the past decades and the International Olympic Committee is fiercely protective of its brand.  The Olympic brand has a lot of value associated with it and companies spend oodles of money to become official Olympic sponsors.  Although all of the individual actions of The North Face may have been okay on their own, they may actually be in trouble when you look at the apparel and marketing campaign as a whole.  Perhaps most troubling for The North Face is the fact that it allegedly had a product catalog that stated the product line “captures the international spirit of the Olympic Games.”